20161028-法国巴黎银行-EM_Strategy_Plus_36页_4mb

EM Strategy Plus Summary - 28 October 2016

Core Content

This report from BNP Paribas outlines the current state of emerging market (EM) currencies and credit, with a focus on OPEC's upcoming meeting and the broader implications for EM markets. The analysis covers various regional markets, including Asia, CEEMEA, Latam, and specific currencies like TWD, TRY, COP, and CLP. It also includes new trade recommendations and a review of previous positions.

Main Themes and Key Points

OPEC Meeting and Oil Prices

• OPEC Meeting: OPEC will meet in Vienna on 28-29 October to build support for an agreement to set oil output quotas from late November.
• Oil Price Outlook: The meeting is unlikely to have a significant impact, and oil prices are expected to remain range-bound over the next six months.
• Correlation to EM Currencies: EM currencies have become less correlated to oil price movements, especially after oil prices dropped below USD 50 per barrel. EM credit, however, has become more correlated to oil prices due to fiscal stresses in oil-dependent economies.

Asia: TWD Out of Whack?

• TWD Performance: The TWD has lagged behind its regional peers (KRW, CNH, JPY).
• Fundamental View: TWD is pro-cyclical and closely tied to trade growth, especially with China.
• Recommendation: Buy 1m USDTWD at 31.67 with a stop loss at 31.10 and a target of 32.50.

Asian FX Positioning

• Positioning Indicators: FX positioning remains unchanged from two weeks ago.
• Currency Trends: Short positions in RMB and SGD have increased, reaching their highest levels since February.
• Popular Currencies: INR and IDR remain the most popular, with short USD positions still near extreme levels.
• Least Favored Currency: PHP is the least favored due to political concerns.

Turkey

• CBRT Cautious: The Central Bank of Turkey (CBRT) paused rate cuts, but this is unlikely to contain depreciation pressure.
• CDS Basis: Turkey CDS basis is at its cheapest level in six months, making it an attractive buy. The report recommends buying Turkey $21 CDS and 5-year CDS protection to pick up 26bp.
• USDTRY: The USDTRY has a negative correlation to oil prices, but this is influenced by local political factors such as the 2015 election and the 2016 coup attempt.

Brazil

• DI Curve Scenarios: The report outlines simulated scenarios for the long end of the DI curve, suggesting further compression in tenors from Jan-21 to Jan-25.
• Public Debt: Non-resident participation in public debt decreased to 14.97% in September, with USD 134bn held, representing 35.5% of total international reserves.

Peru

• Local Debt Participation: Foreign investors' participation in Peruvian local currency debt increased to 43.67% in September from 42.59% in August.

New Recommendations

Trade Review

• Asia: Took profit on the SG versus US IRS trade, initiated a new long USDTWD trade.
• CEEMEA: Took profit on the Tunisia $25s trade due to concerns about an Egyptian Eurobond issuance, added a buy Turkey CDS basis trade.
• Latam: Initiated long USDCLP and long COPCAD trades due to CLP being overextended and COP being undervalued.

Risks and Considerations

• TWD Risk: The key risk to a short TWD position is continued strength in the business cycle, especially in Chinese growth.
• USD Strength: A significant sell-off in the USD could impact TWD and other EM currencies.
• Central Bank Policy: If the CBC changes its stance on currency appreciation, it could affect the TWD.

Additional Insights

• EM FX Correlation: EM currencies have become less correlated to oil prices, while EM credit has become more correlated.
• Oil Price Impact: The WTI oil price has only risen by 3% since the Algiers meeting, suggesting that the production cut discussions may not result in significant price changes.
• Fiscal and Political Factors: Political issues and fiscal pressures in countries like South Africa and Turkey have influenced currency movements.
• Next Week Outlook: Expect more announcements from China's Communist Party Plenum, and key data releases from Turkey, South Africa, and Russia.

Conclusion

The report emphasizes the importance of monitoring both local and global factors for EM currencies, especially as oil prices are expected to remain range-bound. It highlights the shift in correlations between EM currencies and oil prices, and suggests strategic positions in various currencies and credit instruments based on current market conditions and models.